What Do Google's Earnings Reports Tell Us About AdWords Trends?

Google's Q1 numbers are big. Analysts were disappointed that Google didn't hit growth expectations, but a 19 percent year-over-year (YoY) increase in revenue when the numbers are more than $15 billion – that's a lot.

Interestingly for us, 68 percent of that revenue came from Google sites (the AdWords-managed ads on Google itself, YouTube, Maps, etc.).

For ads carried on non-Google sites (the Google Display Network), the revenue was $3.4 billion. Traffic acquisition costs (the amount paid to the sites themselves) was $2.39 billion. So roughly 70 percent of the revenue from the display network is going to the publishers, on the whole.

We Want to Know About Mobile!

It's true that mobile has been the big story around Google's earnings reports for a long time. As soon as it became clear that traffic (and ad clicks) were shifting to mobiles, and that mobile ad clicks pay a lower cost per click, the press and analysts pounced on that as Google's financial weakness. It was inevitable that this trend would continue, so Google needed to do something the arrest the average CPC decline this implies.

But CPCs have dropped again – down 9 percent from Q1 2013, and flat from last quarter.

But wait! Last quarter was Christmas. To see CPCs flat versus Christmas tells us as search marketers something it doesn't tell the analysts.

This obviously depends whether an advertiser is retail or B2B, but across all of AdWords it's pretty reasonable to expect returns to be better at Christmas, and therefore advertisers willing to bid more. There's a lot of traffic and a lot of conversions, and lots of advertisers competing for them. Christmas is always the most expensive time of the year for CPCs as a result, so to see the next quarter flat is actually quite a coup.

So Is the Mobile Story Over?

Kind of.

We've been waiting for ages for enhanced campaigns to start pulling mobile CPCs in line with desktops. We already see bid parity most of the time amongst our clients. In fact across 200+ clients our average mobile bid modifier is slightly positive.

But bids aren't CPCs. As long as the market on mobile remains less competitive we'll continue to see CPCs on mobiles depressed against desktops.

It probably won't last forever, but enhanced campaigns have had their effect now. There's no reason to expect they'll do any more. If an advertiser isn't making mobile work now, waiting three months won't give us a different story.

So Why Aren't CPCs Rising?

If mobile CPCs are closer in line, why hasn't CPC gone up, YoY?

Because Google is sneaky. In a good way, that positively affects us.

Product listing ads are a big part of it, and form a nice representative example.

For online retailers PLAs can be 50 percent or more of their traffic, conversions, and spend. But not everybody is on board yet, so like mobile the CPCs can be depressed versus text ads.

The more spend shifts towards PLAs as a format, the more the average CPCs paid will decrease, even if the CPCs on text ads, mobile and PLAs are all individually rising.

But PLAs are just one example. Google release new ad formats all the time, each starting off with lower bids than text ads. This continual cycle allows advertisers space to pay higher CPCs on each product, and move their budget between products.

Those Budgets Are Growing

There are two sources of that: more advertisers, or more budget per advertiser.

From what we see as search marketers it's pretty skewed toward the latter of those two explanations. It's quite rare nowadays to find new companies saying, "I should use AdWords, but I've never done it before." Much more common is, "I want to do more with AdWords, but I need help to do it." The platform works well when managed properly, so people are looking to spend more if they can.

The new ad formats, products, extensions, betas, etc., all help them to do that. Every time Google add something to help an advertiser target or attract a good user, it gets jumped on.

Image extensions, expanded sitelinks, RLSA – all of these encourage AdWords users to either find somebody they couldn't find before, or get a click they wouldn't have achieved before. Total clicks on Google ads increased 26 percent YoY.

If you'd asked me a year ago I wouldn't have thought such a big increase was possible. I'd have said that the search market was nearing an inflection point, and increases in traffic were slowing down.

I'd have been wrong.

Google is working to keep advertisers on board with better ad formats, better targeting, and new products being introduced with lower cost entry points, all while providing more traffic and more techniques to target ads to the right people.

Analysts might be disappointed that CPCs aren't increasing fast enough. Advertisers who stick with traditional methods and never embrace the new targets, products, and formats are disappointed that CPCs are rising too much.

About the author

Alistair Dent is the Head of PPC at London PPC Agency, Periscopix. He has an MSc in Economics and Econometrics from the London School of Economics and has been running PPC campaigns for four years. To learn more about data-driven PPC management visit www.periscopix.co.uk

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